Off The Wire

China may raise money market rates after Fed: central bank adviser

BEIJING (Reuters) - China’s central bank could opt for small interest rate increases in its open market operations if the U.S. Federal Reserve raises rates, a central bank adviser said in remarks published on Wednesday.

But there was no need for the central bank to follow the Fed’s rate increases in the long term, Sheng Songcheng, an adviser to the People’s Bank of China (PBOC), told the Chinese financial news outlet Yicai.

“Although the PBOC is still likely to raise interest rates slightly in open market operations, China does not need to follow the Fed to raise interest rates in the long run, let alone raise benchmark deposit and lending rates,” Sheng said.

Sheng said China’s interest rates were much higher than those of foreign countries, and its consumer inflation remained modest.

China’s central bank would try to find a way to steer its market interest rate adjustments and further cuts in banks’ reserve requirement ratios (RRR), Sheng added.

The Fed, concluding a two-day meeting on Wednesday, is expected to announce a 25-basis-point rate increase, this year’s second.

Market watchers believe the PBOC will likely follow suit by raising its key money market rates on Thursday, while keeping benchmark interest rates unchanged, as it did in previous rounds of Fed rate increases.

Markets have generally expected another RRR cut in the second half after a surprise reduction in April, with some speculation that it could come as early as June or July.

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